Sustainable Economic Development and Trade Sector

Context

Nepal’s economic situation is characterized by its location as a landlocked country between India and China, as well as by its challenging geographical conditions. In addition, Nepal was hit by devastating earthquakes in April and May 2015. Nepal’s GDP is mainly dependent on agriculture, as well as revenue generated by tourism and remittances sent by migrants. The low skill levels of its workforce, an underdeveloped manufacturing industry, resource poverty and a barely developed infrastructure are detrimental to economic growth and trade. Nepal’s balance of trade is increasingly in deficit, with high imports of consumption goods and oil on the one side, and very low export levels of high value products on the other side.

The Nepalese financial sector continues to be characterized by government intervention and a lack of private initiative to improve financial inclusion, an inadequate regulatory framework, a lack of expertise and insufficient internal processes in the country’s financial institutions. As a result, there is poor access to financial services, particularly in rural areas and in the small business sector. In particular, medium-sized businesses, seeking to finance their investments, find few financial products available to them. To enhance Nepal’s economic potential, progress in other sectors, such as transport and energy infrastructure, as well as the rule of law and transparency, are required.

Political instability, ongoing social discrimination and the uncertain aftermath of the conflict period have, until now, prevented socially balanced economic development. The structural deficits make economic progress even more unobtainable for socially or economically underprivileged population groups (women, disadvantaged castes and disabled, conflict-affected or ethnic groups), especially in rural regions of the Country.

Apart from initiating several programs supporting the growth of entrepreneurship, the government is also reviewing its taxation system in order to establish an attractive business environment and enhance the mobilisation and effective use of domestic revenues. In addition, to increase income opportunities for disadvantaged groups and people living in remote areas, the government supports the cooperative sector as the “third pillar” of the economy. To underline this policy, Nepal’s government established a specialized Ministry for Cooperatives and Poverty Alleviation in 2012. In addition, the Ministry of Commerce focuses, in its trade strategy also among others on the promotion of tradable products that have a particularly positive effect on the income situation of disadvantaged groups.

German Development Cooperation (GDC) Activities and Contribution

The priority goal of GDC in this sector is to support the Government of Nepal in its policies and programs that aim to improve the conditions that can enable socially balanced economic development in Nepal.

The German contribution focuses on:

promotion of the private and cooperative sector,

trade promotion, including quality infrastructure, financial system development and

tax Regulation.

The bilateral engagement in the sustainable economic development and trade sector is complemented by a regional program to strengthen regional cooperation and integration in the field of quality infrastructure.

Program Overview

Inclusive Development of the Economy Program (INCLUDE) - TC

The public, private and cooperative sectors are supported to stimulate socially balanced economic growth in particular in selected districts in Mid- and Far-West Nepal. In order to improve access to markets and quality of services, the capacities of relevant stakeholders will be enhanced. INCLUDE works in areas such as value chain development (medicinal and aromatic plants, honey, ginger, dairy, tourism) as well as innovative and inclusive business models such as green social entrepreneurship. The goal is that at least 15,000 disadvantaged people sustainably increase their annual income by € 200.

Current term: 05/2016- 05/2019

Financial Volume: € 5.0 million + € 2.242 million EIF UNOPS

Trade Promotion Program (TPP) - TC

TPP supports the private sector as well as government agencies to implement the Nepal Trade Integration Strategy more effectively. In cooperation with the partners the goal is to improve the export potential of particular products (medicinal and aromatic plants, honey, silver jewelry, footwear and ginger), and to reduce existing trade barriers for Nepali exports.

Current term: 02/2015 - 12/2017

Financial Volume: € 3.0 million + € 0.757 million EIF UNOPS

Revenue Administration Support Project (RAS) - TC

The efficient and transparent collection and administration of tax revenues will be enhanced through improving management capacities of Inland Revenue Department, better relationship between tax administration and taxpayers, and efficient use of Information Communication Technology system. The education of small and medium taxpayers (SMEs) with the private sector partnership will assist them to better comply with the tax laws. It will expand the tax base by increasing the number of registered taxpayers and tax revenue collection.

Current term: 07/2013 - 03/2018

Financial Volume: € 3.0 million + € 0.214 million DANIDA

Support in the Field of Quality Infrastructure (QI) - TC

A well-functioning system of measurements, standards and conformity assessment – in short: Quality Infrastructure (QI) - is an indispensable condition for participating in trade and for the improvement of basic social services. This project, which is implemented by Physikalisch-Technische Bundesanstalt (PTB), strengthens the key institutions of the Nepalese QI, in particular measurement and testing services. Furthermore, it supports awareness-raising on the significance of QI among public and private sector stakeholders.

Current term: 07/2013 – 12/2017

Financial Volume: € 1.5 Million

Sustainable Economic Development in Rural Areas- FC

To improve access to finance in the loan segment of NPR 200,000 up to NPR 4 million, which is above microfinance and below traditional corporate financing (the so called “missing middle”), the German Financial Cooperation is launching a new project in partnership with Nepal Rastra Bank through two selected banks to address micro, small and medium enterprises financing needs. The program will allow these businesses to harness their full potential, giving particular consideration to the underserved districts in rural Nepal. The intervention will consist of a refinancing line for participating banks, and capacity-building measures to ensure that target group orientated and sustainable financial products are provided.